I6.231 Retirement of partners and IHT
'Retirement' in this context means the departure from the partnership of one partner in circumstances such that the remaining partners continue the partnership business.
In that event, the retiring partner's share is either bought out under some agreement then reached between the partners, or is dealt with according to any accruer or option arrangement previously included in their partnership agreement. The IHT consequences of the retirement of a partner vary accordingly.
If no prior arrangement has been made, so that the retiring partner's share is bought out on terms negotiated on or following his retirement, there is unlikely to be any transfer of value. Either he obtains the full value of his share, or the best value he can negotiate, so that the transaction is commercial. Furthermore, if protracted negotiations are involved it is likely that any disposal will not occur until after he has ceased to be a partner.
It is, therefore, arguable that he is no longer connected with his former partners when the disposal takes place (although the point is not free from doubt, particularly in the light of the Partnership Act 1890, s 42 — see I6.203).
Where the other partners have a right of accruer over the retiring partner's share, or an option to purchase it (see I6.212), the right or option may be on terms that the